Rethinking the Measurement of Household Inflation Expectations: Preliminary Findings

149 Pages Posted: 26 Dec 2008

See all articles by Wilbert van der Klaauw

Wilbert van der Klaauw

Federal Reserve Bank of New York; IZA

Wändi Bruine de Bruin

Carnegie Mellon University

Giorgio Topa

Federal Reserve Bank of New York

Simon Potter

Federal Reserve Bank of New York

Michael F. Bryan

Federal Reserve Bank of Cleveland; Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: December 2008

Abstract

This paper reports preliminary findings from a Federal Reserve Bank of New York research program aimed at improving survey measures of inflation expectations. We find that seemingly small differences in how inflation is referred to in a survey can lead respondents to consider significantly different price concepts. For near-term inflation, the "prices in general" question in the monthly Reuters/University of Michigan Surveys of Consumers can elicit responses that focus on the most visible prices, such as gasoline or food. Questions on the "rate of inflation" can lead to responses on the prices that U.S. citizens pay in general - an interpretation, or concept, closer to the definition of inflation that economists have in mind; they also lead to both lower levels of reported inflation and to lower disagreement among respondents. In addition, we present results associated with new survey questions that assess the degree of individual uncertainty about future inflation outcomes as well as future expected wage changes. Finally, using the panel dimension of the surveys, we find that individual responses exhibit considerable persistence, both in the expected level of inflation and in forecast uncertainty. Respondents who are more uncertain make larger revisions to their expectations in the next survey.

Keywords: inflation expectations, survey measurement

JEL Classification: E31, C81, E60, E66

Suggested Citation

van der Klaauw, H. Wilbert and Bruine de Bruin, Wändi and Topa, Giorgio and Potter, Simon and Bryan, Michael F., Rethinking the Measurement of Household Inflation Expectations: Preliminary Findings (December 2008). FRB of New York Staff Report No. 359. Available at SSRN: https://ssrn.com/abstract=1320196 or http://dx.doi.org/10.2139/ssrn.1320196

H. Wilbert Van der Klaauw (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5916 (Phone)
212-720-1844 (Fax)

IZA ( email )

Wändi Bruine de Bruin

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Giorgio Topa

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Simon Potter

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6309 (Phone)
212-720-1844 (Fax)

Michael F. Bryan

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States

Federal Reserve Banks - Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

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